The Stock Exchange of Hong Kong Limited (“HKEx”) is currently undertaking a period of consultation on Listing Rule changes associated with Risk Management and Internal Controls. HKEx  has published a consultation paper (the “Consultation Paper”) on proposed revisions to the internal  controls section of the Corporate Governance Code and Corporate Governance Report (“Code”) 1

Consistent with corporate governance developments and trends in various jurisdictions, the core  objective of the Consultation Paper is to further highlight the importance of risk management.  Other proposals to improve the Code include clearly specifying the respective roles and responsibilities of the board, management and the internal audit function; as well as to provide  direction as to specific disclosures that issuers should make in the Corporate Governance Report.

Drawing experience from Singapore, Australia, the UK, the US and Mainland China, the core  objectives of the Consultation Paper are to:

  • Confirm that internal controls are an important part of risk management
  • Increase accountability of the board and management by clearly defining their roles and  responsibilities regarding risk management and internal controls
  • Accentuate transparency of the issuer’s risk management and internal controls by upgrading the  recommendation for issuers to disclose their policies, process and details of their annual review  of the effectiveness of their risk management and internal control systems
  • Strengthen the oversight of issuer’s risk management and internal control systems by upgrading  the recommendation for issuers to have an internal audit function

The proposals are set out below:

Click here to view the table.

Moving forward

HKEx is now evaluating market views on these changes, and it is expected to publish consultation  conclusions within the next few months. Given that, HKEx listed companies are recommended to review  their disclosures and internal control systems to ensure that they are capable of complying with the new requirements when they are  introduced.